Sale or no sale? Whatever Yahoo does, don't listen to the analysts

By Shira Ovide and Tara Lachapelle

20 February 2016 - 11:42am

Perhaps the best Yahoo trade has been betting against the analyst community.

When Yahoo shares began to take off in early 2013, most analysts recommended investors do nothing. The price doubled that year, the stock's best performance in a decade, as shareholders started to believe in the vision of then-new CEO Marissa Mayer. Then, when Yahoo was peaking in November 2014, analysts said that was the time to start buying. It's plunged more than 40 per cent since.

In part, the market declines reflected growing doubts over that time period that Yahoo could make good on its plan to distribute its stock ownership in Chinese e-commerce giant Alibaba without paying taxes. Yahoo in December threw in the towel on that idea, and now is pursuing a Bizarro World alternative plan to distribute shares of Yahoo's operating business and leave the Alibaba holdings intact.

The tune on Wall Street hasn't changed much. According to data compiled by Bloomberg, about 61 per cent of analysts feel sanguine enough about Yahoo to recommend buying shares, as the company starts on chapter 427 in its perpetual turnaround plan.

Under pressure: Marissa Mayer, president and chief executive officer at Yahoo! Inc. But most analysts still have a buy rating on the stock.

The company already said earlier this month that it was prudent to consider "strategic alternatives" -- code that it is open to selling the company -- even as it throws assets and people overboard to improve Yahoo's ugly financial performance. Yes, Friday's move does show Yahoo is serious about considering deals, but that is what corporate boards are obligated to do.

The news does underscore how the daunting task of running Yahoo is actually three daunting tasks at once: Fix Yahoo's Internet businesses. Untangle Yahoo from its valuable investment in Alibaba. Talk with AOL, private equity firms or any other interested parties about buying all or parts of Yahoo. That is a lot of plates to keep spinning.

Stock market value down $US14 billion in a year

It's easy to imagine Yahoo felt it needed to demonstrate how seriously it is taking the possibility of a sale. Activist investor Starboard, which has tasked representatives with calling other stockholders in preparation to potentially throw out company directors, has publicly said it believes Yahoo has ignored legitimate interest in buying the company's operating business. And like any company in these litigious times, Yahoo needs to check every box in the good governance to-do list to ward off the lawyers eager to use any lapse as a basis for suing Yahoo's purple pants off.

There are a couple of important things Yahoo didn't say Friday in its announcement. Has anyone actually made an offer to buy the company, spurring the creation of a board committee to weigh such a bid?

And who are these independent directors charged with the essential -- or maybe essentially window-dressing -- task? It's a small pool of potential director candidates. After a couple of recent defections, Yahoo was left with seven board members, and two of them are employees: Mayer and David Filo, who is a Yahoo co-founder, the company's biggest stockholder and its "Chief Yahoo."

No matter what motions Yahoo goes through on a possible sale, when you listen to Mayer's press interviews and other public comments, it doesn't really sound like she wants to sell her company.

She says all the things CEOs are supposed to say in her circumstances. Getting Yahoo in better shape will make the company more valuable, no matter whether it stays an independent company or is sold. A sale wouldn't be a personal failure. etc. Like any CEO, she has to believe the best path is the one that ends with her riding a (metaphorical) white horse, leading Yahoo out of the wilderness for good.